Why would a net-lease refinance closing be conditioned on a lease amendment's rent commencement date?

When a tenant's lease has been recently amended, extending the term or adjusting rent, the lender wants confirmation that the new rent terms have actually taken effect before funding, since the loan is underwritten against that updated income stream. This refinance's closing date could not occur until the lender received evidence that the new rent commencement date under the lease amendment had occurred.

How does non-recourse carve-out liability work on a single-tenant net lease loan?

A non-recourse loan generally shields the borrower and guarantors from personal liability for the debt itself, but carve-out provisions restore that liability for specific bad-faith or negligent acts like fraud, misapplication of insurance proceeds, unauthorized property transfers, or a borrower-caused lease default. This loan was structured as non-recourse with a full set of standard carve-out exceptions covering these scenarios.

What is a rate lock deposit on a net lease loan application, and when is it refunded?

A rate lock deposit, typically a percentage of the loan amount, secures a locked interest rate for a defined period after signing. It is refunded at closing or if the lender declines the loan, but is not refunded if the borrower withdraws the application or the loan fails to close within the lock period for reasons outside the lender's control. This loan required a rate lock deposit equal to 0.5% of the loan amount to fix the rate for up to 60 days.

Can a commercial refinance be structured to recapture equity for the ownership group?

Yes, when the new loan amount exceeds what is needed to pay off existing debt and closing costs, the surplus proceeds can be distributed to the ownership as an equity recapture rather than held back. This refinance's $1,500,000 in proceeds paid off $1,160,000 in existing debt and covered closing costs and fees, leaving approximately $290,000 recaptured by the ownership group.

Case Study: $1.5M Single-Tenant Net Lease Refinance with Equity Recapture in Michigan

Deal at a Glance

Loan Amount	$1,500,000 (lesser of $1.5M or 40% of appraised value)
Property	Single-tenant net-lease pharmacy, ~10,948 SF on 1.65 acres
Location	Chesterfield, Michigan
Transaction	Refinance with equity recapture
Lender	a community bank
Rate	Greater of 10-year Treasury + 195bps or 5.75% fixed
Term / Amortization	10 years / 10 years (fully amortizing)
Maximum LTV	40% of appraised value
Minimum DCR	1.15x
Prepayment Penalty	3%/2%/1% (years 1-3), none years 4-10
Loan Fee	0.5% of loan amount
Rate Lock Deposit	0.5% of loan amount, 60-day lock
Recourse	Non-recourse with standard carve-outs
Equity Recapture	~$290,000 to ownership after payoff, fees, and closing costs
Closed	Q4 2022

The Deal That Walked in the Door

We are Commercial Lending Solutions, a commercial mortgage brokerage based in Los Angeles, and this refinance brought us a family ownership group holding a single-tenant net-lease pharmacy property in Chesterfield, MI. The ownership wanted to refinance the existing debt on the property and pull out remaining equity following a recent lease amendment that extended and strengthened the tenant's commitment to the location. We placed the loan with a community bank specializing in conservatively leveraged net-lease commercial real estate. Commercial Lending Solutions specializes in single-tenant net-lease refinancing and permanent financing for investors across Michigan and nationwide.

Single-tenant net-lease properties in Chesterfield, Michigan are financed almost entirely on the strength of the underlying lease and tenant credit, and getting a life-and-annuity style lender comfortable underwriting to a recently amended lease, rather than the original terms, required careful sequencing between the lease amendment and the refinance closing.

What Made It Hard

Sizing the loan against a low leverage ceiling. With the loan capped at the lesser of $1,500,000 or 40% of appraised value, and further limited by a 1.15x minimum debt coverage ratio, structuring a genuine equity recapture within that conservative ceiling required precise coordination with the appraisal.
Timing the closing to a lease amendment's rent commencement. The lender's closing date could not occur until it received evidence that the new rent commencement date under the first amendment to the lease had actually occurred, tying the refinance timeline directly to an external lease event outside the lender's control.
Coordinating a fast-moving rate lock and application deadline. The loan application would be automatically rejected if the expense deposit, application fee, and signed application weren't delivered by a hard deadline just over a week after the application date, leaving little room for delay in mobilizing the ownership group's signatures.

"On a low leverage deal like this, the real risk wasn't the underwriting, it was the calendar. We had a hard rate lock deadline stacked on top of an external lease amendment condition, so getting signatures and deposits moving fast was what actually protected the recapture number."
, Trevor Damyan, Commercial Lending Solutions

How We Ran the Process

Trevor Damyan, a California-licensed real estate broker (CA DRE 02244836), placed the refinance with a community bank, with the signed loan application dated September 29, 2022:

$1,500,000, the lesser of that flat amount or 40% of the property's appraised value, secured by a first mortgage, an assignment of leases, rents, and profits, and a security interest in all personal property associated with the site
A fixed rate equal to the greater of 195 basis points over the 10-year Treasury Rate or 5.75%, locked for up to 60 days upon a 0.5% rate lock deposit paid by the lock deadline
A fully amortizing 10-year term, with monthly principal and interest payments, a five-day grace period, and a 5.0% late charge on delinquent payments
A minimum 1.15x debt coverage ratio, calculated on net operating income after a 1.0% administrative fee and a capital reserve allowance of at least $0.15 per square foot
Non-recourse structure with standard carve-outs: full recourse to borrower and guarantors triggered by fraud, misapplication of insurance or condemnation proceeds, failure to maintain required insurance, unauthorized property transfers, an uncured lien, bankruptcy filing, or a borrower-caused lease default or termination
A declining prepayment premium of 3% in year one, 2% in year two, 1% in year three, and no premium from year four through the full ten-year term
A 0.5% loan fee, a $10,000 expense deposit, and a non-refundable $2,500 application fee, plus a 1% broker fee and a $3,500 processing fee paid separately by the borrower
Closing conditioned on evidence of the new rent commencement date under a first amendment to the tenant's original lease, plus a fully executed subordination, non-disturbance, and attornment agreement and tenant estoppel certificate
Estimated sources and uses: $1,500,000 in loan proceeds against $1,160,000 in existing debt payoff, an $18,500 broker fee, a $12,500 lender fee, and $19,000 in estimated closing costs, netting approximately $290,000 in equity recapture to the ownership

The refinance closed with the lease amendment's rent commencement confirmed, retiring the prior debt and delivering the recaptured equity to the ownership group.

Why We Won This One

Sequencing the refinance closing to the lease amendment's rent commencement date, rather than trying to close in parallel with an unresolved lease event, is what kept this deal from stalling. A net-lease lender underwriting to updated rent terms needs proof those terms are actually in effect, and confirming that milestone before pushing toward closing avoided a mismatch between the loan's underwriting and the property's actual income.

Meeting the tight application-to-deposit deadline also mattered on a deal this conservatively leveraged. With the loan capped at just 40% of value, there was little room to negotiate additional proceeds if delays forced a re-underwriting; moving the ownership group's signatures and deposits quickly protected both the locked rate and the full recapture amount originally modeled.

Is This Structure Right for Your Deal?

If you own a single-tenant net-lease property with a strong national tenant and want to refinance while recapturing equity, a conservatively leveraged institutional lender can offer long-term fixed-rate certainty with minimal ongoing risk. We arrange retail and net-lease property financing and permanent loans from a network of more than 1,000 capital sources.

Apply for financing or call us at 310.708.0690 to talk through your refinance.

Trevor Damyan

Commercial Mortgage Broker, Commercial Lending Solutions | CA DRE 02244836

Trevor Damyan is a commercial mortgage broker at Commercial Lending Solutions with a background in structured finance at CBRE and Marcus and Millichap Capital Corporation. He specializes in bridge loans, construction financing, SBA programs, DSCR loans, and complex capital structures for investors and developers across all 50 states.

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